By MICHELE F. MIHALJEVICH
Indiana Correspondent

AMES, Iowa — The chances are small that Congress will adopt legislation to stop the return of the estate tax next year, an Iowa State University agricultural law professor said.

A provision of the 2001 tax bill gradually raised the exemption for federal estate taxes from $675,000 in 2001 to $3.5 million last year. The tax was repealed for this year, but if Congress doesn’t act, the estate tax will return on Jan. 1 with an exemption of $1 million and a tax rate of 55 percent.

“Absolutely nothing will happen this year. Congress has had a decade to work on this. It’s pure politics,” said Roger A. McEowen, also the director of Iowa State’s Center for Agricultural Law and Taxation.

“If you’re a farmer with $2 million in property and you die this year, there’s no tax. But if you die after the first of the year, the estate tax is $1.1 million.”

The situation is creating havoc for estate planners and for farmers, McEowen noted.

“The lower exemption brings in a lot more farmers or ranchers. They should consider making gifts or looking at other options. It’s no longer a time to wait and see. They need to be proactive and plan if they haven’t already.”

Several amendments and bills have been introduced in both houses of Congress to end or repeal the estate tax, also known as the death tax.

U.S. Rep. Jim Jordan (R-Ohio), who represents the state’s 4th district, co-sponsored the Economic Freedom Act (H.R. 5029), which calls for a permanent repeal of the estate tax and the elimination of the capital gains tax. He is pessimistic that action will be taken this year on the estate tax.

“I have introduced a bill to permanently kill the death tax,” Jordan said. “But unfortunately, with Democrats in Congress spending like there is no tomorrow, they are only talking about tax increases, not tax cuts. For that reason, I have a hard time seeing any willingness on their part to reduce or eliminate the estate tax this year.”
The 4th district includes Lima, Findlay and Mansfield, and a large rural area north and northwest of Columbus.

Jordan’s office has been contacted by farmers, estate planners and other residents about the estate tax issue.

“The concerns we’re hearing from farmers are similar to what we’re hearing from other small business owners regarding the administration’s overall economic policies – there is too much uncertainty about what new damaging taxes and regulations will hit them next,” Jordan said. “Because of this uncertainty, farmers and small business owners cannot make sound decisions about how, where, and when to invest while they’re wondering if they will have to sell land or equipment later to pay their estate tax bill.”
The president of the National Farmers Union (NFU) said his office hasn’t heard from any members concerned about the potential return of the estate tax.

“They’re thinking of issues such as climate change, federal spending, energy and ethanol, and that these issues have a much larger impact on farmers than this,” Roger Johnson said. NFU has nearly 250,000 members.

Johnson said he doesn’t think Congress will pass legislation repealing the estate tax before the end of the year.
“They have a lot of things on their plate and this is probably not at the top of their agenda,” he explained. “But the idea of eliminating the estate tax is a non-starter.”

NFU favors an exemption of $4 million rather than elimination of the estate tax, Johnson said.

“This is a huge chunk of the budget and you can’t just throw it away and impose another tax on someone else who can’t pay.”
Most farmers who might need help figuring out the best approach to dealing with the return of the estate tax are probably getting it, Johnson noted.

“99.99 percent of farmers worth more than a million dollars are already working on estate and tax planning. They’re dealing with this already.”